The Growing Gulf Rivalry That's Pushing Up Oil Prices

A bitter public rift between the United Arab Emirates and Saudi Arabia over boring quotas in the week caused talks between the world’s biggest oil-producing nations to be abandoned and left energy markets in limbo, pushing oil prices to a six-year high.

The 23 nations in Opec, which comprises the Organization of the Petroleum Exporting Countries cartel and allied producers like Russia, had to postpone their negotiations indefinitely, raising fears about its stability of a gaggle that has deftly handled supplies over the past 18 months to deal with the coronavirus-related global depression .

The problem began last week, when the UAE rejected a proposal by Opec leaders Saudi Arabia and Russia to increase output curbs for an additional eight months.The UAE wanted to renegotiate its current baseline – the extent from which production cuts or increases are calculated – to offer it freedom to pump out more oil. However, Saudi Arabia and Russia were against doing so.

The negotiations took an usual turn when the energy ministers of the UAE and Saudi Arabia , which are close allies, went public with their differences.

“The rift has come as a surprise, but perhaps the tassel was inevitable,” says Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington.

“Abu Dhabi’s production capacity is at odds with its Opec quota. it’s invested tons of cash to boost its production. And now demand is learning . That’s why the UAE has been frustrated over the last year at its inability to extend production,” he adds.

Two princes

For several years, the partnership between Saudi Arabia and therefore the UAE has shaped the geopolitics of the Arab world.

The personal bond between Saudi prince Mohammed bin Salman and Abu Dhabi prince Mohammed bin Zayed has been instrumental in cementing this alliance.

But cracks within the relationship began to seem two years ago, when the UAE withdrew most of its troops from Yemen, leaving the Saudis displeased.

In January, the Emiratis reluctantly accepted a Saudi-lead deal to finish the Qatar embargo, albeit they continue to be wary of trusting Doha. Similarly, Saudi Arabia wasn’t enthused by the UAE’s decision to normalise relations with Israel last year.

The cracks began to deepen this February, when Saudi Arabia issued an ultimatum to multinational companies to relocate their regional headquarters to the dominion by 2024 or lose out on government contracts. This was perceived as an implicit attack on Dubai (in the UAE), the commercial hub of the region.

After the Emiratis blocked the proposed Opec deal, the Saudis seemed to retaliate by suspending flights to the UAE. It cited concerns about coronavirus variants, but the choice came just before an Islamic holiday when many of us head to Dubai for an opportunity .

Saudi Arabia also announced that it might exclude imports from free zones or linked to Israel from a preferential tariff agreement with other Gulf states, delivering a blow to the UAE’s economy, which revolves around a free port model.

Economic competition

The tussle at Opec+ is underlined by a growing economic rivalry, with both countries trying to diversify their economies by reducing their dependence on hydrocarbon exports.

With Saudi Arabia adopting a more aggressive economic strategy under Mohammed bin Salman, they’re now competing in sectors like tourism, financial services and technology.

“Saudi Arabia is that giant within the region which is now awakening . And at some level that’s a priority for the Emiratis,” says Neil Quilliam, an associate fellow at Chatham House in London.”In 15 to twenty years’ time, if Saudi Arabia transforms into a dynamic economy, then that might be a threat for the Emirati economic model.”

It is still unclear whether Saudi Arabia and therefore the UAE are going to be ready to agree on a replacement Opec deal.

But Ali Shihabi, a Saudi analyst on the brink of the royal court, doesn’t believe the rift will hamper their relationship within the end of the day , albeit the Emiratis’ rigid stance came as a “shock” to the Saudis – especially as long as that they had worked very hard to realize consensus.

“Both the edges have had much bigger disagreements within the past,” he says.

“Every relationship goes through ups and downs, including the US and therefore the UK. But the basics of this relationship are really [too] strong to cause any permanent damage to the present alliance.”